Lower Cotton Price Dents Brazil Harvest Hopes Too

Ideas that lower world cotton prices are dampening production prospects, and raising prospects of eroding record world inventories, received another fillip when US officials followed up a downgrade to Australia's harvest with one for Brazil too.

US Department of Agriculture officials in Brasilia downgraded by 200m bales to 6.3m bales their forecast for the Brazilian cotton crop in 2012-13.

The prospect of a 27% drop in production year on year reflected in part a knock-on effect from the slow start to Brazil's soybean seedings which, in implying a later-than-hoped-for harvest, will lower farmers' enthusiasm for a follow-on cotton crop.

Second crops of corn and cotton, while enjoying strong 2012 results in the major producing state of Mato Grosso, are a high-risk proposition, grown in what is often a dry part of the year.

'Prices remain unfavourable'

However, the drop of some two-thirds in cotton prices from a record high in March last year had also played a part.

"Futures prices for cotton remain unfavourable, and have contributed to a 30% year-on-year reduction in estimated planted area," the USDA staff said.

The downgrade follows a cut last week to estimates for the harvest in Australia, which is competing with Brazil for second rank in world cotton exports, after the US, and offers extra evidence of price cuts fostered by an expected rise in world stocks to a record high, at last, impacting farmers' appetite to grow the fibre.

The International Cotton Advisory Committee, which will later on Monday unveil its latest monthly cotton report, In November upgraded its estimate for world cotton production in 2012-13 by 400,000 tonnes to 25.88m tonnes, noted that "despite the sharp fall in cotton prices… cotton plantings did not drop much".

The small decline was "due to above-average prices at planting time, government policies and favourable weather in some major producing countries" in the northern hemisphere, the committee said.

'Considerable quality damage'

Indeed, in the northern hemisphere, while the USDA's Islamabad office also cut forecasts for Pakistan's 2012-13 cotton production, the downgrade reflected reduced expectations for yields rather than reduced ideas over sowings.

The revision reflected a range of weather setbacks, including a lack of water in some areas, thanks to an unusually slow pace of glacier melt, June heat which promoted outbreaks of cotton leaf curl virus, and floods which left the equivalent of some 1.0m bales of cotton with "considerable quality damage".

The area of Pakistan cotton harvested this season was estimated at 3.0m hectares, the same as in 2011-12

The country's appetite for the fibre is being supported by concessions granted by the European Union for imports of Pakistan cotton, as part of an aid package after the 2010 floods.